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The House Committee on Energy Resources met to hear invited testimony regarding interim charges related to the Railroad Commission of Texas’ response to Hurricane Harvey, the Gas Reliability Infrastructure Program, frac sand mining, wind energy facility decommissioning, state policies affecting public infrastructure in the Permian Basin and monitoring of agencies and programs under the committee’s jurisdiction.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. This report is not a verbatim transcript of the hearing; it is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

Examine how state policies may facilitate investment in public infrastructure and workforce development in the Permian Basin region in order to support the anticipated growth in industry activity and related population and capture the full economic potential of the region.

 Wayne Christian, Texas Railroad Commission

  • Downturn in petroleum prices in 2015 had a huge impact on the workforce in the Permian basin
  • By 2020 Texas is expected to be the world largest energy producer
  • Lack of labor is largest challenge to the industry moving forward both in Texas and in the future
  • Many young Texans have negative connotation of the oil & gas industry
  • Created taskforce to address the issue of workforce
  • Darby – reemphasized task force meeting being help this afternoon
  • Darby – what is needed to help bolster the Texas energy workforce?
    • Making the public aware that jobs are available
    • There is a misunderstanding of the oil & gas industry
    • 1/3 of the jobs in Texas are energy related, curriculum regarding energy needs to be produced for students
  • Darby – one benefit of the downturn in 2015 was greater efficiency in the industry. Can you speak to transportation needs?
    • There is a huge need for transportation workforce
    • There is a technical skills perception problem
  • Canales – is the labor shortage across the entire industry?
    • It is
  • Canales – one problem seen is unrelated matters to the job affecting ability to work in the industry (i.e. small criminal convictions, etc.) much of the workforce is prohibited from working and may require some criminal justice reform related to this
  • Isaac – discussed STAAR testing questions that are biased against oil & gas, education is an area that needs to be focused on
    • Excited about the oil & gas curriculum being discussed with TEA
  • Walle – noted that HISD has an energy High School and embraces the industry
    • Intended to highlight that most students are not applying for or are unaware of the available jobs in the industry
  • Clardy – discussion of rural vs urban opportunity for jobs
    • There is a need across the entire industry for workforce from all backgrounds
  • Anderson – there is a need to get the industry to partner with schools for a private public partnership; there is also a need for positive messages regarding the industry through social media
  • Landgraf – discussed UTPB energy programs as a possible place to develop some of the training programs needed
  • Darby – there is a disconnect that needs to be fixed between the industry needs and education

 

Kylie Wright, Texas Alliance of Energy Producers

  • Discussed professional background
  • Working to develop student membership program
    • Helping students to finds career paths
    • Currently have over 200 members at 21 universities and colleges across the nation

 

Evaluate the evolution of frac sand mining in the Permian Basin and how it may impact county infrastructure and oil and gas development. Develop possible recommendations that could assist counties with frac sand mining to better prepare the area for the entrance of this new industry.

 Charles Wolf, Winkler County Judge

  • Do not have the infrastructure to handle the frac sand industry
  • Due to the industry housing costs and values have skyrocketed
  • Darby – how are the private public partnerships created that could be helped legislatively?
    • Setting the standards on the road through the county and TxDOT
  • Darby – how do you counter the argument that because there is an increased tax base that you will have enough money locally to repair and rebuild these roads?
    • The problem is that the services are needed now but the tax collections will not be seen for at least a year and a half
  • Darby are there promulgated forms the help with this process?
    • Gillespie – one issue is that the services are needed today and even the time it would take to get that done would be an issue. It is a dynamic learning process and should have a process created shortly to help streamline the process
  • Landgraf – how new is this technology and these issues?
    • We were working on it about a year and a half ago, but it is still fairly new
  • Landgraf – what was the traffic situation like prior to the new industry?
    • Anytime the energy sector comes up we see increased traffic issues
  • Landgraf – so drivers are trying to make up the time anyway they can safe or not?
    • That is correct
  • Landgraf – what types of increases in local government costs are you already seeing?
    • County hospital has picked up a lot of the accidents
    • Seeing a lot of EMS and Fire and law enforcement overtime
  • Landgraf – what is the recruitment and retention like in the county?
    • The county sheriff’s office is fairly stable but the TxDOT officers cycle through fairly quickly
  • Darby – noted that congestion is not the only issue, also safety must be taken into account as infrastructure is developed

 

Hayden Gillespie, Black Mountain Sand

  • Discussed the business holdings
  • Should be upwards of 20 mines in production by the end of 2018
  • Need for infrastructure
  • Have been creating public-private partnerships to help bolster the infrastructure and solve industry related issues
  • Lambert – how do drivers get paid?
    • Per load
  • Lambert – do you see a schedule basis as incentivizing safety?
    • Yes, but looking at even more ways to incentivize safety
  • Landgraf – what type of supply are we looking at?
    • Expect a 30-year supply for each mine developed
    • Brigham – Have roughly a century’s worth of supply
  • Landgraf – what can the legislature do to make private-public partnerships easier?
    • This is beneficial to all of the constituents out there, anything the state can do to help facilitate that process would be helpful to get capital to the infrastructure

 

Chris Nordloh, Texas Department of Transportation

  • Available as resources witness
  • Darby – you have spoken in the past regarding communication and technology systems between agencies for truck enforcement, can you speak more about that?
    • Not in TxDOT interest to get in the way of commercial industry
    • The more technology that can be used to screen vehicles to narrow the focus on vehicles need to be checked to not get in the way of industry or public transportation
  • Darby – are there firewalls built between agencies that may inhibit the combining of the technologies?
    • There are some hubs in place already but need some improvements to be able to monitor traffic at this level
  • Darby – what are best practices for truck ways and corridors to lessen the wear and tear on roadways?
    • Anytime the county or TxDOT sees wear on the roadways they should be planning a place for TxDOT to do inspections
    • Crash mitigation policies for commercial vehicles should be considered
  • Isaac – how many officers are available for commercial enforcement?
    • About 500 officers, 77 municipalities and 200 local officers
  • Isaac – Discussed number of municipalities conducting CVEs returning funds to the state (2 of the 77 have returned funds) and the fines generated from commercial inspections
    • TxDOT is responsible for keeping this program viable
    • MOUs with municipalities address many of the issues that have been raised regarding this program
  • Isaac – are electronic logs required for the frac trucks?
    • They are not required yet; expecting intrastate drivers will be required by the end of 2019
  • Landgraf – have you seen increases in application for CDL driver’s license?
    • Federal standards have meant that most applications are going through 3rd party testers
  • Landgraf – because much of the traffic is intrastate does that effect the reporting for freight carriers?
    • Do not believe so, it still gets reported and only effects some difference in requirements between the intrastate and interstate
  • Anderson – has there been any outreach to TxDOT to try to use concrete barriers/dividers to cut down on fatal accidents
    • Do not have input on how roads are developed
    • Notices many improvements and good ideas regarding safety aspects

 

Bud Brigham, Atlas Sand

  • Discussed written testimony maps and graphs
  • Had to buy and transport sand from other states before discovery of Permian sand
  • Because some land is leased from the GLO, there will be a significant addition to the PSF
  • Sand mining has smaller footprint than the perception
  • Sand industry will directly supply over 1600 jobs
  • Recommend that all san miners get permitted to help work on road improvements through TxDOT
  • Darby – what kind of trucks are coming out of your facilities every day?
    • Each facility does 5-600 trucks per day, 6500 trucks per day in the Permian basin
    • Routes are between 50-150 miles
    • Targeting the fastest possible gate to gate time
  • Darby – what best practices should the legislature know about regarding the industry
    • The delivery systems are driven by the E&P
  • Landgraf – does the fact that the sand is regionally sourced helps drive down the costs, does it do that in a way to keep the Permian basin as the epicenter on the energy industry?
    • There is no question that is contributes to the basin being the lowest cost/highest margin to produce
    • Local sand means a roughly 5% cost saving to production in the basin

 

Study the Gas Reliability Infrastructure Program and its effect on gas utility ratemaking and ratepayers.

 Thomas Brocato, Texas Gas Services – Galveston Service Area Cities

  • GRIP statute – utility makes 6 filings without regulatory action
  • Currently many GRIP filings about to go into effect
    • Some are not insignificant increases
  • GRIP modifications are warranted:
    • Utilities that are over earning should not be allowed to increase GRIP rates
    • Load growth should be taken into account prior to a GRIP filing
    • Certain expenditures should be allowed in GRIP filings; definition of invested capital should be limited
    • Should be limited to 3 filings before a review is taken
  • This mechanism should be reviewed and updated
  • Darby – you believe that current mechanisms are not adequate?
    • If a utility is already overearning it seems unreasonable that they should be able to continue to raise rates
    • There is not a way to stop annual rate increases without a full rate case proceeding and then the law allows for the company to immediately to make grip filings
  • Clardy – if there is an overcharging utility is there a claw back method?
    • There is, grip is an interim rate adjustment
    • A rate case that reveals unreasonable costs can be reclaimed
    • Ryan – those claw backs are returned with interest

 

Jason Ryan, CenterPoint Energy

  • Described CenterPoint Energy
  • Grip mechanism is a rate mechanism that is efficient, balanced and transparent
  • Rate cases are expensive, and GRIP makes the process more efficient for all involved
  • GRIP is more transparent by providing frequent expenditure reports
  • It is balanced because it provides an opportunity to see longer trends in cost of services at more frequent intervals
  • Darby – how does the grow play into the idea that load growth should be taken into account prior to a GRIP filing
    • Has more to do with earnings, which is already covered by the GRIP mechanism
    • Operator already has opportunity and ability to do that
    • If operators believe that they are getting unfavorable rates, they have the ability to request rate proceedings
  • Darby – you’re saying that there are already mechanisms in place for over earning utilities, correct?
    • Correct
  • Clardy – if a project estimate is over you’d be considered over charging?
    • Actually, companies use numbers that are determined after the project has been complete and only after can the company start getting reimbursed

 

Monitor the agencies and programs under the Committee’s jurisdiction and oversee the implementation of relevant legislation passed by the 85th Legislature. In conducting this oversight, the Committee will also specifically consider:

  1. Long-term funding solutions for a stable regulatory structure;
  2. Adequacy of well-plugging processes and funds;
  3. Cleanup and removal of abandoned equipment; and
  4. Seismic research needs for the University of Texas Bureau of Economic Geology and any response to research findings by the RRC.

 

Wei Wang, Texas Railroad Commission

  • About 160 wells from reaching plugging target
  • Additional funding would give more resources for well pugging but cash flow certainty as well
  • Darby – what other aspects of regulatory function are challenges for the agency
    • There is a desire to broaden the IT system (received $3 million last biennium)
    • Need for more pipeline inspectors
    • Revenue is dependent on industry 2015-2016 downturn effected cashflow for the agency
  • Darby – we want the agency to be self-funding, but the industry has changed; are the permitting fees up or down do to changing practices in the industry?
    • Slightly up
  • Darby – the agency is on track for projected revenues?
    • Still looking for budgetary certainness but numbers have been up over the last three months

 

Aaron Velasco, Texas Railroad Commission and UTEP Professor

  • TexNet is critical for the commission
  • Darby – funded in 2015 and deployed mobile arrays, is it fully deployed?
    • Texas hasn’t had a stable seismic network prior to TexNet
    • Many temporary deployments which will help with collecting data to create rules moving forward
  • Darby – concerns with the Oil & Gas activity inducing seismic events, what does the data show?
    • National Research Council released study showing that injections are what creates the seismic activity
    • There is not a wealth of data yet, especially background data
    • Much research is ongoing to continue to collect that data to be able to make correlations
  • Darby – have not heard much about seismicity in urban areas, is that fairly accurate?
    • There hasn’t been much activity recorded in the DFW area in two years
  • The more information the better
  • Darby – is there anything this committee needs to look at?
    • There is a need for companies to share their information to be able to make the best decisions possible
    • Should be elevated beyond self-regulation for companies
    • Wang – facilitation processes for sharing data

 

Michael Young, Texas Bureau of Economic Geology

  • Conduct geology research for the state
  • STAR Program have 13% ROI
  • Discussed TexNet program
    • Have fully deployed
    • Have a permanent array and temporary deployable array
    • Streaming data live to the bureau
  • All information is available to the public (went live in October of 2017)
  • Provides objective data for Railroad Commission
  • Deployment of sensors has aided in identifying depth and magnitude of seismic activity
  • Pursuing applied research program
  • Darby – how is the TexNet Advisory Committee funded?
    • Through the 85th legislature hold harmless provision for UT
    • Do not believe it was a special item

 

John Tintera, Texas Alliance of Energy Producers

  • Discussed resolution relating to regulatory efficiency
    • Permits for water usage and recycling
    • Ensuring regulatory framework for technological advancement in water usage in the energy industry
  • One concern with seismicity is relating to injection
    • Need more science to ensure that good policies and practices are being used
  • Funding for TexNet is vital
  • Lambert- you said there wasn’t funding for the TexNet program?
    • It wasn’t in the budget in the 85th, but there is funding through UT for the project
  • Darby – after having been deployed we are getting critical information, and now we are relying on UT for funding. Need to assume the legislatures responsibility to fund this.

 

Examine how commercial wind energy facilities are decommissioned and whether current statutes adequately protect the rights of wind facility landowners.

 Rod Wetzel, University of Texas Professor 

  • Worked on landowner friendly wind leases
  • First wind leases had contractual obligation in the lease to clean up the property after the lease was up
    • Long term leases led to many companies becoming insolvent before the lease was up
    • Created removal bond to finance the cleanup at the end of the lease
  • Darby – concern with adequate remedies for landowners even though cleanup is contractual, is there any mechanisms for decommissioning costs?
    • Its still a little too early in Texas for decommissioning; There is a lot of repowering to continue the lifespan of wind farms in Texas
    • There is not statute that requires that yet; current procedure works well
    • A statute might help those landowners who do not have representation but may hinder negotiations for those who do have representation
  • Darby – what kind of decommission clause should be in a lease?
    • First part designates when cleanup would occur after lease termination; specificity on what cleanup includes
    • Removal bond part includes an amount sufficient to clean the property and the amount is revisited periodically to ensure adequate funding for cleanup
    • Discussed timeline of bond creation (usually a number of years after the lease begins)
  • Darby – what should the state do as far as minimal decommissioning language?
    • Could be helpful but it would have to be carefully drafted

 

Jeff Clark, The Wind Coalition

  • In many cases the wind company pays for representation for landowners who otherwise would not have representation because most relationships are very long term
  • Not aware of any projects that have not had decommissioning language
  • Darby – does the coalition agree on language that should be included in the decommissioning clause?
    • There is a recognition that there is a need to provide the funding for the promised decommissioning but concern with over regulation
  • Darby – would like for the coalition to work with Rep. Canales for promulgated language regarding decommissioning language
  • Anderson – what is the cost of decommissioning a turbine?
    • Do not have specific numbers at this time but will provide that information
    • Many factors go into the cost of decommission
  • Lambert – are the costs exceeding the scrap value?
    • Understand that the scrap value exceeds the decommissioning value
  • Lambert- have discussed bonding at the front end of decommissioning language in a contract
    • The negotiation takes place at the front end, but the financing takes place further down in the process
    • Wetzel – trend of setting the value of decommissioning at current removal cost
  • Severance of wind rights will be an issue that will need consideration in the future

 

Examine the Railroad Commission of Texas’ (RRC) response to Hurricane Harvey. Study whether current state rules and regulations are sufficient to protect the public, natural resources, environment, infrastructure, and industrial facilities from damage caused by natural disasters. Evaluate options to ensure the availability of fuel reserves for first responders during natural disasters.

 

Rich Parsons, Texas Railroad Commission

  • Took actions beginning the week prior to landfall
  • Issued notice to operators in industries under RRC purview
  • Had a team that assisted operators in conjunction with TDEM
  • Used social media to connect with people for reporting issues and to put out safety information
  • Issued waivers for actions that would speed up the reporting and response activities
  • Commission received 33 reports of spills due to Harvey
  • Staff reviewed over 26,000 photos resulting in 350 inspections, 12 violations (11 violations were brought into compliance)
  • Darby – what were the violations?
    • Many were spills into water
    • Will provide specific information to the committee
  • The RRC is not a first responder agency with authority or training; role is to investigate violations and provide technical expertise
  • Biggest challenge faced is access to sites to investigate potential spill sites
  • Darby – what agency do we deploy to ensure fuel for first responders?
    • TDEM has fuel supply or works on fuel supply issues
    • Agency does not collect that information
  • Accessing spill sites – spill may have been washed away in cannot get there quickly enough

 

Scott Fisher, Texas Food and Fuel Association (TFFA)

  • Described the Association
  • Created and implemented fuel plan for the Houston area for Hurricane Ike – very successful
  • Receive notification from TDEM in the event of a potential hurricane on the coastline – leads to notification of members and direct them to contact customers that are critical infrastructure (mostly emergency response and local governments, hospitals, nursing homes, etc.)
  • The states emergency fuel contract is with a member of the association (Sun Coast)
  • TFFA was invited to be in the SOC to work on fuel related issues with the overall supply (in concert with TXOGA)
  • Darby – how do we encourage better consumer behavior?
    • Bad information ended up in a bad result after Harvey
    • One problem was social media with people listening to others
  • Darby – there has been concern with shutoff valves on offshore wells, were there any problems associated with that?
    • Not to my knowledge
  • Regarding fuel reserve (wet gallon fuel reserve) – the majority of fuel needed is going to be diesel which has a shelf life, that is where the complication and expense comes in
  • Darby – seems like there would have to be geographic diversification in addition to just a reserve
  • There is a need to help the public understand where the state sits on fuel supply